Mobile operators get closer to their destiny as simple ISPs

By November 19, 2009Mobile

imageReading this morning on Techcrunch that Google’s rumoured ‘phone’ may be a data only device and that AT&T has confirmed they  will sell data only plans to customers who bring in Blackberry and Windows mobile devices has me thinking that the day when operators recognise their destiny and accept their future as simple ISPs is getting close.

There is nothing wrong with being a simple ISP (also known as a dumb pipe) of course, except maybe the name.  Traditional telecoms businesses like BT started out with content and portal ambitions in the late 1990s and backed out of that to be ISPs in recent years and I’ve thought for a long time that mobile operators will go the same way.  This is not a bad thing, running a lean and mean network can be a profitable exercise and one that adds a lot of value to society.  Electricity and water utilities have been doing this for years.  Further, embracing the future as a pipe doesn’t rule out selling content oriented services – they just need to be viable on a stand alone basis

Being a pipe is, however, a low margin business and with low margins come low ratings on stock markets which is why mobile operators have been fighting their destiny so hard.

I’m writing this morning because the news that AT&T is selling data only plans to Windows Mobile and Blackberry users means they have embraced their future as a simple ISP for those customers.  If Google starts selling a data only phone we will have operators around the world following suit.

As a brief finale the increasing ubiquity of free and cheap wifi networks is also bringing the day of reckoning forward.

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  • It's not necessarily true that low margin businesses are rated lower by the markets. A high growth low margin business will trade at higher multiples on everything except revenues than a low growth high margin business. All that count are cash flows, profits and growth.

    But, you're right – in the sense that if (ceteris paribus) margins fall, so will the multiples and share price.

  • stuartnewstead

    Hi Nic.

    I'm not sure about this. It's worth separating the retail and wholesale threats and opportunities for mobile operators.

    At a retail level, convergence of voice/data, analogue/digital content & applications, and (not yet in a big way) fixed/mobile means that mobile operator brands have to compete with other very big guys who have not been traditional competitors, as well as their traditional direct competitors.

    At a wholesale level, one of the main barriers to entry – spectrum – is slowly becoming more available, so the uniqueness of a mobile licence is gradually diluting. Also, cost pressures on capacity are ramping up very quickly as iPhone-syndrome spreads round networks. Many networks are starting to share or outsource their network operations, so are seeking cost efficiencies ahead control of their own destiny. This “hollowing out” of their core source of value could have long-term consequences. In addition, the markets can't regard mobile operators as utilities because the latter don't face technology risks, and the regulatory risks they face are also limited. Neither applies to mobile operators.

    So … while I agree that mobile operators have dates with their ISP destiny, I would suggest that they are facing more horsemen of the apocalypse than is in your post.

  • Tks Stewart. I agree, but I try to avoid being too negative.

  • Dimitri Inglezos

    I agree with you on this Nic. People want and need to access more and more information on the go.

    An ISP type of model for mobile companies would make more sense because then they can expand (or share) their network depending on capacity required.

    Perhaps there is a case for mobiles to work together with the traditional ISPs to offer more bandwidth in the future.

    If you see companies like 3 here in UK, who provide some basic internet utilities for free (such as Skype and MSN) and Full internet access for a £5 (for a max of 3GB/month) get more and more popular for people.

    I guess the challenge here is how to increase profitability in this low margin game by providing value added services or perhaps working in partnership with other online entities.

  • Couldn't agree more

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